Thank you for standing by and welcome to the Coronado Global Resources 2024 half-year results presentation. All participants are in a listen-only mode. There will be a discussion of results from the CEO and CFO, followed by a question-and-answer session. If you wish to ask a question, you'll need to press the star key, followed by the number one on your telephone keypad. I would now like to hand the conference over to Andrew Mooney, Vice President, Investor Relations and Communications. Please go ahead.
Thank you, Darcy, and thank you, everyone, for joining Coronado's half-year investor call. Today, I'm joined by our Managing Director and CEO, Douglas Thompson, and our Group CFO, Gerhard Ziems. Today, Coronado released its half-year financial results to the ASX and SEC, including its Form 10-Q financial statements, half-year earnings release, and results presentation. All of these materials are available for free on our website at www.coronadoglobal.com. Within our results presentation, we again disclose our important notices and disclaimers and reconciliations of non-U.S. GAAP financial measures. We encourage you to review these statements as well as other filings with the ASX and SEC. As always, Coronado quotes all numbers in U.S. dollars and metric tons unless otherwise stated. With that, over to Douglas.
Thanks, Andrew. And thanks, everybody, for taking the time today. I know there's a lot going on in the markets, so giving us your time is appreciated. Going to our first slide, the first half of 2024 delivered tangible and promising results and showed the significant potential that lies within our plan and captured returns from investments that we have made over the past 18 months to optimize and expand our mining operations in Australia and in the U.S. The material improvements in production, sales, costs, and revenue reported in Q2 are the direct result of sustained focus on our plan to ensure that Coronado remains competitive and a world-class producer of met coal for decades to come. The significant cost and productivity gains occurring in Q2 were made possible by the successful completion to plan of our historic pre-strip waste deficits and the subsequent removal of 4 fleets.
This allows for the sustained improvement in dragline productivity and drill and blast performance, setting new benchmarks for future performance. Production and cost improvements were also realized in the US, with yields increasing as per our plan at Buchanan following the installation of the Southern District longwall and the reopening of Powellton Mine at Logan. Our present preference of organic growth funded by cash flows rather than bolt-on acquisitions funded by debt or equity is proving to be prudent in a challenging market characterized by high inflation and increasing taxes and royalties. Our growth projects in Australia and in the United States continue to make good progress. First goal for Mammoth is expected to be in December 2024, subject to regulatory approvals, and Buchanan expansions are scheduled to be completed in Q2 2025.
Completion of both these projects is expected to deliver incremental tonnages of up to 3 million tons per annum once fully ramped up. Maximizing returns from our portfolio of high-quality assets through expansions and ongoing productivity and cost improvements will further strengthen our balance sheet. Coronado's reportable incident rate improved year-on-year at group level and also at both of our operating segments, Australia and the United States. Our total reportable incident rate as of June was 1.01 compared to 1.18 this time last year, which is a 14% improvement year-on-year. However, our business was deeply saddened by the tragic fatality of one of our employees in May at Buchanan. As previously reported, an investigation is underway, and until this investigation is concluded, we cannot provide further comment other than to note our continued support of Mr. Jackson's family, friends, and coworkers.
Now, turning to slide six, the material improvements realized quarter-over-quarter in our business is shown on the slide. We realized ROM production increases of 24%, saleable production increases of 21%, sales volumes increases of 8%, and a reduction in mining costs per ton of 27%. These results reflect 18 months of hard work from everyone in the business to drive our business forward and deliver our plan. However, as I've noted previously, the job is not finished. Our plan has more to offer. We are progressing further operational and cost gains in the coming quarters via the safe implementation of additional productivity improvements and the development of our organic growth projects at Curragh Buchanan, both of which have extremely positive prospects. With our Q2 results and the positive outlook for the second half of the year, we reaffirm our previously announced 2024 guidance.
At Curragh in Q3, we are undertaking a planned major shutdown of one of our four draglines to ensure its long-term reliability and productivity. In late July, we incurred some mechanical delays at our overland conveyor and bucket wheel reclaimer that needed to be addressed. As of today, both pieces of infrastructure are back operating. However, we did have some coal flow delays in late July and early this month. Our sellable production levels are expected to increase in the second half of 2024 due to several factors within our plan, but to highlight a few of these. Both of our longwalls are planned to run simultaneously for periods of H2, which we expect will realize higher blended yields and maximize the full system of our underground equipment, both longwalls and material handling.
The continued incremental production at Logan following the implementation of highwall mining at our surface operations and the reopening of Pelton Underground in the second quarter at Logan. Then, in addition, the improved Curragh production. Given the productivity improvements in our draglines, our dozer push fleets, and our truck and excavator fleets, all of these will result in increased coal extraction rates in the second half of the year. Our performance is underpinned by our strategic priorities. Firstly, striving to ensure the safety of our people. Secondly, optimizing our high-quality asset base, progressing our organic growth pipeline at Mammoth Underground and Buchanan expansion, and then maintaining a responsible capital management strategy. With that, for now, I'll hand over to Gerhard, who will take you through a bit more of the detail on the company's financial performance and market outlooks.
Thank you, Douglas, and thanks to everybody joining the call. Today, I will keep my part quite short as we have essentially pre-released most of our results two weeks ago. If you go to slide nine as of end of June, we continue to maintain a strong balance sheet with healthy liquidity levels, allowing for continued investment in our very accretive organic growth projects without the need for raising additional capital. In the first half of 2024, our business delivered group revenue of $1.3 billion and adjusted EBITDA of $135 million and net income of $16 million. The majority of EBITDA achieved in the second quarter resulted from production and cost improvements, as Douglas previously outlined.
Turning to slide 10, we completed the half year with an available liquidity of $414 million and a net debt position of $5 million, so not much. We have maintained healthy liquidity levels year to date despite the negative impact of one-off payment that's in Australian dollars, AUD 79 million, inclusive of interest to the Queensland Revenue Office in March. That was a so-called stamp duty thing. This payment was made prior to us lodging our appeal with the Queensland Supreme Court against the QRO's stamp duty assessment on our 2018 acquisition of Curragh. Cash generated from operating activities, excluding the QRO payment, was $63 million for the half year, as outlined on the slide. A significant component of our earnings continues to be paid in government royalties and rebates.
For the half year ended June, we paid $226 million in government royalties and rebates, equating to an approximate cost of $30 per ton, which is significant. The continued impulse in our industry from the elevated Queensland royalty regime continues to put pressure on earnings and cash flow, not only for us, but of course for the entire industry. Moving to slide 11, our capital management strategy is set out as follows. Number one , maintain a strong balance sheet. Number 2, deliver shareholder returns. And number 3, prioritize organic growth projects to increase production. Upon review of our business strategy in organic growth, it is presently not one of our core focus areas, as we realize there is a substantial value in our existing business, which holds more than 800 million tons of reserves. The development of Mammoth and our Buchanan expansion works are examples of that.
Down the track, we also have many other options for development, including X pit and Z pit at Curragh, further expansions at Buchanan, and greenfield options at Russell County and Mon Valley. We closed our 2023 maintaining a strong balance sheet despite the impacts on steel and metal markets from global economic headwinds, including high inflationary pressures and high interest rates, in addition to higher Queensland government royalty rates. Our capital management strategy will continue to apply throughout 2024 as we continue our growth investment mandate from the board. That will translate then to higher production, lower costs, higher margins, and ultimately higher shareholder returns over time. If we move to slide 12, today, Coronado's board of directors declares a biannual fully franked fixed dividend of $8.4 million or $0.005 per CDI to shareholders in accordance with the dividend policy that we have got.
Our business continues to invest in its organic growth projects, and in order to provide the company with maximum flexibility to achieve delivery of these projects, only declares at this stage a biannual fixed dividend. Subject to delivery of these projects, ongoing operational performance and market conditions the Board may decide to declare special dividends in future periods. The payment date is scheduled for September 18th this year, and no matching offer to senior secured noteholders is required for this dividend. Moving to slide 13, then 14, I want to talk about the met coal markets and steel markets. So look, I think there was a rally in met coal prices in July following supply issues from some of our peers in Queensland and the U.S.
However, in recent weeks and days, we have seen the Premium Low Vol Australian Met Coal price fall to about $215 per tonne. I think the current prices represent a floor. Hard to say in this environment, but we expect that in late August, early September, prices will rebound on the back of Indian restocking appetite after the monsoon season, which is kind of the regular thing every year. In the same period, we expect Met Coal supply to be restricted with mine production issues from our peers and railway maintenance occurring across the Queensland network. Despite the lower prices, it is pleasing to see the PCI relativities improve as of today. PCI prices are about 87% of the benchmark price, up from 55% relativity at the end of last year.
Moving to slide 15, as we outline here, undoubtedly the long-term growth story for Met Coal is projected future demand from India. India remains one of our largest export destinations and is forecasting GDP growth rates of approximately 6% year-on-year for the next 20 years. Long-term growth in Met Coal export demand is anticipated to push trade flows up from an estimated 388 million tons in 2024 to an estimated just under 600 million tons in 2050. India is expected to lead all countries in import demand growth due to its significant potential for urbanization and industrialization. Imports are expected to increase to 269 million tons by 2050, up 241% from today's levels. What India is projected to import equals almost today's seaborne export market.
Indian crude steel production is expected then to grow from 150 million tons to 434 million tons by 2050, an increase underpinned by blast furnace steel generation methods. And here at Coronado, we continue to remain very bullish on the Indian growth story and South East Asia. And we have close relationships with these regions. For the half year, 22% of all Coronado coal revenues were generated from exports to India. I will now hand back to Douglas to talk about organic growth investment plans. Douglas.
Thanks very much, mate. As outlined in our last call, our growth projects at Mammoth Underground and Buchanan expansion continue to progress to time and on budget. Subject to approvals, first coal for Mammoth is expected in December of this year, and the Buchanan expansion works is expected to be completed in quarter two 2025. Upon completion of full ramp-up, we expect these projects to deliver incremental tonnages of about 2.5-3 million tons of met coal to the seaborne market each year. And as I point out at every opportunity I get, these investments represent the best use of our capital in order to grow our business and ultimately provide sustainable returns to our shareholders, as these projects continue to be funded by internal cash flows generated from our business without the need for additional debt or equity requirements.
The projects are also at multiples substantially lower than recent market opportunities. Turning to slide 18, on this slide, we show images of our newly constructed VAM unit at Bench 18 at Buchanan and completion of some rehabilitation works at our Greenbrier property. Given the proven success of our first VAM unit at Bench 16 to reduce emissions, Coronado undertook a commitment to install a second unit at Bench 18, which was successfully completed and commissioned in June. The establishment of the second VAM unit is expected to further reduce Coronado's emissions as part of our strategic path to a 30% emission reduction goal by 2030. The Greenbrier image reflects our commitment to meet or exceed environmental obligations with the intention of restoring the land to the agreed rehabilitation and closure criteria. We're proud of our rehabilitation efforts across our portfolio of assets.
I'd now like to shift gears and talk to the short-term targets and our investment credentials. This slide demonstrates the path we are taking in the short term, which is to achieve higher tonnages, lower costs, lower capital expenditure, and higher margins over the next three years. The investments we've made to date and will continue to make into our business based on our well-executed plan are bearing fruit. Our fully funded Mammoth Underground project and Buchanan expansion works will deliver more tons to the market. Our cost per ton will lower given the forecast of higher met coal production rates, combined with improvements we've already implemented and continue to implement at improving our productivities at our sites. And return to more normalized capital expenditure levels is expected upon completion of the capital projects in the second half of next year.
We expect these investments to translate to higher margins and higher free cash flow generation from our business, and all of which is within our control. In addition, as the completion date of the existing Stanwell agreements draws closer every month, we expect further valuation uplifts early 2027. These gains for our business will sit against a backdrop of higher for longer met coal pricing driven by the expected supply demand imbalances outlined by Gerhard a little earlier. So it's important for us to pause and focus on the substantial valuation uplift for our business that will be achieved once the Stanwell supply agreement expires. The current Stanwell agreement is a legacy agreement we inherited when we purchased Curragh in 2017.
To summarize it, the existing agreements under the Stanwell supply agreement, or as we call the CSA, sees Curragh supplying Stanwell power station in Queensland approximately 3 million tonnes of coal per year below market prices. In addition, Curragh is required to pay a rebate akin to a royalty for a certain percentage value of all export tonnes sold. So come late 2026, early 2027, these arrangements under the CSA expire, and we internally estimate approximately $290 million of uplift in EBITDA per year as a result. While we do retain a supply agreement to Stanwell to supply 2 million tonnes at the end of the current CSA, we will have an additional 1 million tonnes to sell into the export met coal market, boosting our revenues. Additionally, the Stanwell rebate is no longer payable, a substantial cost reduction for our business.
In a scenario where the production from our operations is higher, so we're producing more met coal from Curran following the implementation of the Mammoth Underground, we're excited about the future margins to be achieved following the expiry of the CSA. Now turning to our final slide, the fundamental focus of our board, executive, and entire Coronado team is to generate sustainable returns for our shareholders. Our shareholder value proposition is supported by three pillars under which we are making significant strides as we progress the milestones within our plan. The first of these pillars is that met coal is a critical material in a market that has structural shortfall in supply. The pace of change driven by the energy transition is set to exacerbate that shortfall.
Our business is extremely well positioned given our long-life met coal assets to take advantage of the supply demand imbalance and resulting pricing environment for years to come. Our second pillar, operational excellence. As I've outlined, we have made significant operational strides at our three operations that have resulted in material improvements that we reported in the second quarter. We are aiming for further cost improvements as we demobilize a fifth fleet from Curragh as our productivity plans bear fruit. We also continue to execute our organic growth plans at Buchanan expansion and Mammoth Underground that will underpin our 2025 production targets. Our third pillar being capital management. Our commitment to prudent financial management and a strong balance sheet ensures that we have a sustainable business.
As of the 30th of June, we continue to maintain a strong balance sheet that has funded our organic growth without the need for raising additional funding. Our ongoing commitment to being a responsible custodian of the resources we own is evident in our track record as we continue to invest in rehabilitation and emission reduction works across our portfolio of assets. The Coronado team, the board, and I are excited to execute our plan and thereby deliver sustainable returns to our shareholders. With that, I'll hand over to Darcy, who will take us through a Q&A session.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Paul Young from Goldman Sachs. Please go ahead.
Good morning, Doug, Gerhard, and Andrew. Hope you're all well. Doug, a few questions on the growth and the portfolio. I mean, first of all, it's great to hear the ongoing focus on improving operations and returns. First question, just on the Curragh Underground, I see you've submitted a sort of public review period ends at the end of, I think, end of August, end of this month. Can you just step through, I guess, what is the standard procedure as far as the time involved in the Queensland Government actually approving an underground like this?
Paul, one of the key things to it is once you go into a DES process, it's a predetermined time. They've got a well-worked-out process of gate stops that you work through in one of these approvals, and there's time allotted to each one of them. If we take the outer limit of the time allowed for the process to be worked through, it is second half of November for us to get our approval of our project. We've gone through the first couple of gates, which include after our submissions that is submissions from DES for additional information. We've supplied all of those, and consequently, we went to market for public consultation, as you pointed out, last week Monday. And that's a 20-day business day process. And once that closes, then DES gathers the information.
We go through a couple of other processes of assessment and then requirement, and then we'll get their rulings handed down, which will range from a series of requirements possibly placed on the project or additional controls we need to demonstrate to them as we go through the approval process. The great thing about it is it's quite a well-defined process, and it's got set timelines that we and they need to work to meet our obligations.
Thanks, Doug. That's good clarity. Then maybe switching to CapEx and the profile that you show on slide 20, just the flat CapEx profile into 2025, and then reducing in FY2026. I'm curious about if we strip out the growth CapEx on Buchanan and the Mammoth Underground, what does sustaining CapEx look like in 2025? Or more of the question is 2026 CapEx that's stepped down and that new base. Is that majority sustaining CapEx in 2026?
That's correct. After half of 2025 when this project's end, the growth capital comes to an end in our profile and sustaining capital. So it takes us forward at the moment, probably of the growth capital, two-thirds is Buchanan, one-third this year is Mammoth. Mammoth will probably switch over next year will be the lion's share. And about $140 million of that expenditure this year is for sustaining capital.
Okay. Thanks, Doug. And just last one in this set, at least. Just on bolt-on opportunities, I mean, I think you made the comment that you focus on organic opportunities to improve operations, which is great. But just curious around maybe an operation nearby starting with the J that clearly has synergies but has a very complicated ownership structure but is packaged together at the moment. But if that opportunity did come up at the right price, would that be something you'd look at?
As you said, presently, our hands are full. We've got a smorgasbord. Gerhard pointed to it, but we've got these two projects we're delivering now at multiples that you all can do the math as well as we can. And I want to comment on other people's projects and their multiples. But we're substantially lower. On our internal calcs, we're well below 2s. So they're very attractive. They're a great return, I did. The projects that have been out to date haven't caught our interest because they really didn't fit our strategies. As you point out, there are other projects, and not just in Australia, that have synergistic opportunities for our business, particularly around product or operating side of things that are interesting for us. But they've got to make sense for us at the right time.
The one across the fence, J, does make sense, but it is tied up in a fairly complex ownership structure that hinders interest. Then the other thing that Gerhard pointed out, the Queensland royalties take the shine off most investments in Queensland and makes it very difficult to get investors excited at this stage for two reasons. One is just the burden that's put on it, and it takes all the upside off, so the market has to bear the downside risk, and the upside is eroded. Then the other side of it that is taken away is lack of security because changes are made with such limited consultation. It's quite hard to get confidence in these long-term investments. That's why we are very comfortable with the risk profile we have with the assets that we own at the moment.
We understand what products are going to come out of them, and we can see the value creation that we can generate from them. And then beyond that, as Gerhard pointed out, we've got two open cuts that we're evaluating at the moment at Curragh that is in our future. And then we've got two greenfields being Russell County and Mon Valley within the portfolio of assets we already own and understand. So we've got a lot of exciting ideas inside our business before we go and look at other people's opportunities or potential challenges to bring into the business. But that's our present focus. I wouldn't say we wouldn't ever look at new or growth opportunities as they make sense for us.
Thanks, Doug. That's very clear. Appreciate it.
Paul, if I can just add one point here. You have seen that we dropped the fourth item out of capital management strategy that was inorganic growth. You just dropped it out. So I think that's a strong message to the market that at the moment, we are just purely focused on organic growth.
Thank you.
Thank you. Your next question comes from Chen Jiang from Bank of America. Please go ahead.
Good morning, Doug and Gerhard. Thank you for taking my question this morning. I got a couple pieces. So firstly, by looking at your balance sheet and free cash flow, you are still in negative free cash flow this half. I'm wondering what is the key for you to get back to positive free cash flow besides the met coal prices? So based on your current cost and production outlook from on slide 20, you have outlook, especially you achieved a very good quarter of mining cost. So I'm just wondering if you can give us any color on your balance sheet and free cash flow. And then the second one is once you're back to positive free cash flow, what is the priority? Is that start building a resilient balance sheet back to net cash from net debt or revisiting the dividends beyond the minimal dividend payment? Thank you.
Yeah. Let me answer the last one first. So I stick to the capital management strategy that we explained. First of all, maintain a strong balance sheet. Our balance sheet is strong. So if you go back to, and we will go back to producing decent cash flows, then item two kicks in, distributions to shareholders. So on your first question, I referred to slide 10, our operating cash flow is positive. When we look at the stamp duty, that definitely impacted. That's $52 million. That certainly impacted cash flow. What we're going to do to improve cash flow further is exactly what you've seen in quarter two. Continue on that path, deliver production at low cost, which means basically operate at higher productivity levels.
Sure, sure. And then so back to positive free cash flow, I mean, what is the priority? Keep building, have a resilient balance sheet back to net cash from net debt or revisiting the dividends because you have been paying the minimum dividends in the last 12 months?
Yeah. As I said in my speech just now, we stick to our capital management strategy. The first item is really maintain a strong balance sheet. I do believe we have a strong balance sheet. Then number 2 kicks in. So once we have attractive cash flows, and when we look at our dividend policy, we go back to making distributions. So all of our shareholders are keen on this, and I think we are well set up with a new project to make these distributions in the near future.
Sure, sure. Thank you for that. Then another question for slide 20, the median outlook for the saleable production mining cost per ton and CapEx. So by comparing that slide versus the slide released in February, when you released the FY23 financial results, it's the same. But you had a very good mining cost in the June quarter, which proved to the market your FY24 guidance seems achievable. I'm just wondering, is there any upside for your estimating the mining cost by looking at that outlook from FY24 to FY26 based on what you have achieved in the last quarter? Thank you.
Well, I mean, first of all, let me respond to the cost question here. We stick to our guidance, right? So for this year, we just stick to our guidance, and we believe that's definitely achievable, as you have seen in quarter two, our cost performance in quarter two. We can replicate this in quarter three and quarter four, and then therefore achieve guidance. Quarter one was a little bit of something that put a spanner in the wheels here. So therefore, I would be careful to overpromise anything. And then we don't really give guidance in outer years. But what I can say is exactly what Douglas referred to. We will continue on this productivity improvement path, which will reduce costs and will improve production volume. And then at the end of 2026, a large portion of our costs, meaning the Stanwell rebate, will fall away.
That's a profound number. Overall, when you look at the things that come our way, we will become more productive at lower cost.
Sure. Thank you very much, Gerhard. I'll pass down. Thank you.
Thank you. Your next question comes from Glyn Lawcock from Barrenjoey. Please go ahead.
Morning, Douglas. I was wondering if we could just go back to Curragh for a minute. I think in your response to Paul's question, you said the outer limit for time to be worked through would be the second half of November 2024. I think you meant that's when the latest you think you get regulatory approval. Could you sort of help me understand what can't you do until you get regulatory approval? What's the remaining steps you need to do physically at the mine site? And what's the latest you need approval to actually achieve first coal in December, the month of December? I'm just trying to understand exactly what has to occur. Thanks.
Your choice of words, terminology explains it perfectly from what I meant by outer limits, firstly. And secondly, what we need is approval the day before we start. So at the moment, we have done the civil works. There's no regrets behind doing the civil works. We've well progressed on the highwall stabilization and the prep work for the portals. So we can set up portal covers, the infrastructure around all of that, and then we can also cut the first entry to portal. All the infrastructure and enabling infrastructure like offices and that are presently going at the moment, water management, stockpile areas, the loading onto the overland conveyor to feed the prep ponds, all of that work is done. So all of the critical path items in that regard have been decoupled.
Our procurement strategy has the first fleet arriving in November and be ready for operational a little bit before November, actually, but ready for operational and testing, final testing on site in November. So the last thing that we will need is that approval by the government for a mining method change. And it's important to point out, we fully permitted to mine this coal. We can mine it all open cut. We're seeking a mining method change. And that's what we're going through at the moment is that permitting change.
Okay, Douglas. So essentially, if you get approval no later than the second half of November this year, because you're just going to punch straight in, that'll give us first product coal as you punch straight in in December.
Correct.
Okay. Just turning to Buchanan, I know it's semantics, but you're now saying Q2 2025, previously May 2025. It's a bit of a you say it differently in the release today. Is it slipping into June, or are you still comfortable May, even though you're now saying Q2?
No.
Even May.
That is May. The team have done great work in the shaft sinking and the concrete lining. We're busy doing the shaft equipping works at the moment, and that's all on schedule, on time. The surface works is also on program, on time. They're doing very well on both of those scopes of work at the moment, holding time.
Is there anything that we're waiting on that could delay that? Is there any more approvals or anything like that in the timeline? What's the critical path?
No. This is the beauty of these projects of ours. The expansion works in particular is all within our control. We've got full control there. Material supply has been the longwall for the southern district. We de-risked that by ensuring that we had that delivered last year. We've had that operating for all of this year. And the beauty is the northern section's longwall has gone into operation last week. So we'll enjoy both longwalls running for the second half of this year, as I said, and that'll give us system efficiencies, and it'll also give us a blended yield efficiency that we couldn't enjoy in the first half. And now we're pushing for that bottleneck being the hoisting capacity. When we double our hoisting capacity, we can run up our longwalls more and push the bottleneck out from underground to surface. That's where the raw storage area project de-risks there again, and that project's on time.
Okay. If I could just slip a couple of really short ones in for Gerhard. Just firstly, Gerhard, on the working capital build, how much of that do you think can be unwound, and how much do you think now sits as permanent? Just trying to get a quantum and timeframe to unwind it. Thanks.
Probably some of that will be unwound for sure in quarter three. Off the top of my head, probably half. There's a lot of inventory built in coal inventories.
That's 50%. About half of what you built over the first half, you think you can unwind?
Yeah. Yeah.
Okay. And then just really quickly, the appeal on the stamp duty for Curragh, I guess there's no update there?
No, no update. That'll take a little bit of time, but no update.
All right. Thanks very much.
Thank you.
Excellent.
Thank you. Your next question comes from George Eadie from UBS. Please go ahead.
Yeah. Good day, guys. A lot of questions been asked. Just the first one on prices. So Gerhard, you said earlier $215, you think is a floor. I see July shipments were weak seasonally from Queensland, and you talked to Indian demand before as monsoon season ends. Any insight you can give us here and maybe any comments on Russian tons entering India? Is this a risk to prices potentially?
Yeah. Look, I think let's respond to the Russian question first and then overall market. Yes. I mean, Russia has been selling met coal into India and China, and by the way, into South Korea and Brazil quite heavily and quite at a large discount, I would say, between $150-$160 a ton, PCI. PCI is trading at like 180, what is it, 187. So big discounts. Now, recently, the Americans have sanctioned certain Russian met coal businesses or coal businesses. Elga is one, and Elga is quite a large one that keeps basically PCI prices at very high relativities. Nevertheless, Russia is trying and will continue to find ways to export their coal into India and China and other places where they can. One example is that they just built a railway that goes via Iran then to a port where they export it into India.
So I think there will be infrastructure routes available for Russia to keep exporting their met coal, and that will have impacts on dynamics. But when I say impacts on dynamics, not so much on the met coal benchmark price we talk about. It's more on the prevalent Russian products like PCI and semi-products. And semi-products like Elga has large reserves in semi-products. The semi price probably is approximating met coal, sorry, thermal coal prices now. It's not too far away. I think semi-soft today sits at $145, and thermal coal sits at $144, something like that. So that's on Russia. We will see some interesting dynamics playing out. And of course, the Americans made it hard for the Russians to export their stuff. Bear in mind that the market is just one global market.
If Russian coal is sanctioned at the moment and can't find its way to customers, and it's good for any Australian coal, if it opens up, I think the only thing you see is like PCI goes back to normal relativities. On the overall market question, $215 today, we have seen $215, $216 over the last few days. Prices have come down from in June $250, in July $240, and now $215. So you see a massive market correction, which is common at this stage as India, the biggest offtaker, I would say, biggest importer of met coal, has retreated from the market because of monsoon. And then we have other aspects. I think you look at Europe, you look at rest of Asia, it's pretty the steel markets are not very strong at the moment given the overall economy.
I think it's amazing to see and to be able to say that met coal prices at $250, there's a floor. In fact, we see prices going up in, call it early September, when India comes back and then much stronger than in quarter four. Long-term prices, it depends on, but long-term prices, you have seen the demand dynamics out of India and Southeast Asia. Certain met coal prices will shoot up to price levels we haven't seen before in the next five years. Okay?
Yep. Just one more. Thanks. That was good, Gerhard. Just on the Stanwell rebate, is there an exact date it expires? I think Douglas said earlier, late 2026, early 2027. The press release says early 2027. Is there a date?
There's not really a date because we haven't committed really to tons in our contract with Stanwell. It's more energy level. So it really depends on how much energy we can deliver through our tons. So that's why it's end of year we're talking about decimals here. So it's end of 2026, early, when I say early, probably January 2027.
Yep. Okay. Yep. Perfect. Thanks. And just one more Glynn's question. I didn't catch all of it. But on the working cap unwind, did you say around half of what was built in half one will unwind the second half? I'm guessing most of that's at Curragh with the delays at the end of the month.
That's right. We have seen some coal inventory built at Curragh, and some of that will unwind. We won't be there forever. So I think when we look at the coal inventories in March, they were like $96 million, and then in June, just about $140 million. So coal is $40-$45 million more. Some of that will unwind. I would almost say all of that increase could unwind. Yes.
Great. Thanks, guys.
Yeah.
Thank you. Your next question, it comes from Hazmy Hazin from Foster Stockbroking. Please go ahead.
Thanks, Doug and Gerhard. Just on the July progress so far, can you update us at Curragh and Buchanan? Do you continue to see production and costs improve during the month?
Yes. At Buchanan and Logan, our plans are going well. As I mentioned earlier, our longwall now in the north is into production, so we can start enjoying the system efficiencies and blended yields that we'll get out of running both of those longwalls. And Pelton mine and the additional incremental tons from the highwall mining from surface is going to plan. At Curragh, we're on plan. As I mentioned, we've had a few mechanical issues with the overland conveyor and bucket reclaimer. We did the repair works to that, and it's back up and running. It was an impact in the month of July and probably a little bit at the beginning of August. But in the quarter, that'll smooth itself out. So there's strong resilience to the plan.
From a cost perspective, as pointed out, our productivity plan showed the potential of standing down a fifth fleet. We've signaled that to the market through the first half, and we've crystallized that. We've stood the fifth fleet down and we're in the process of demobilizing that in this month.
Great. Thanks for that. Just in terms of the met coal price, have you seen, of course, the suspension of Anglo Mine earlier sort of pushed the prices and then it came down lower? Will we see actual impact sort of translate into shortage and all that going into the second half when demands pick up in late August or September?
We could. I think when the news came out about Grosvenor, prices shot up. That was more speculation, to be quite honest, simply because the market was subdued and India is out of the market. And that product is exactly the product that India wants and needs, the premium mid-vols that Grosvenor produces. So yes, when India comes back, I think Grosvenor produces about 2.5 million tons per year saleable production. So that has been taken out of the market. In the short term, it will have an impact on the met coal price. It could definitely support higher price levels when India comes back. And in the long term, it will be substituted with North Goonyella or Centurion that Peabody opens up again. So that volume will come back from Peabody's North Goonyella mine, previous North Goonyella mine.
Thanks, Gerhard. And in terms of relativity, I think you mentioned it's improved by 87%. Do you expect similar kind of level going into the second half as well?
It depends on. I think it depends on Russia. I think the reason we see lower PCI prices at 87% relativity to the benchmark is Russia and the sanctioning of Russian coal. And it depends on how fast Russia can bring back their volume to the market. I think in a balanced market, you see the lower PCI relativity at about 73%, 75%. So it could correct a little bit downwards, but I think in quarter three, we will see elevated levels, maybe even quarter four.
Right. Thanks for that. And just lastly, just follow up on earlier question in terms of free cash flow. Do you think if you're on track and manage to achieve your guidance by the end of the year, would you be able to achieve positive free cash flow by then?
Yeah. Absolutely.
All right. And I think you mentioned in terms of capital management on healthy or strong balance sheet, do you have any sort of definition for that? Do you view as a certain kind of gearing or certain kind of net cash as your indicator for strong balance sheet?
Yeah. So I go back to what I've been saying for the last two or three years. I want liquidity of at least $200 million. That means I can go through any difficult downward period like COVID without major impacts. So that's how I define what I need in terms of strong balance sheet. But of course, being net cash is a nice position to be in. But I have a clear target for the last four years, $200 million liquidity that will get us through any storm.
Yep. That's clear. Perfect. Thanks, Gerhard.
Thank you.
Thank you. Your next question comes from Paul Young from Goldman Sachs. Please go ahead.
Yeah. Thanks again, gents. Gerhard, question on the rebate, the Tier 1 rebate, the Stanwell rebate. I know you've given that slide again, which is helpful around the timing of that falling away. But just a question on the absolute $ million rebate in the last couple of periods. It's been pretty steady. Coal prices have been bouncing around. Obviously, your revenues have been bouncing a little bit as well. So when it comes to the reference price, it's 12-month trailing. It's inherently quite difficult to model, I think, and the cash flow is quite sensitive to the modeling of the rebate. Anything to call out on the go forward as far as how the reference price might change and any impacts from the coal mix at all between, say, PCI and hard coking coal? I know it's a hard question to answer.
No, I think we're not going to see major changes in our coal mix. Even the underground will produce probably something what we see right now at Curragh. And we have probably I mean, you can see it. Unfortunately, we have got the thermal coal in there. That's a big element, 3 million tons. But that will go down to 2 million tons, and the other million tons we can convert into some met coal product in 2027. I think when you look at the prices, the best way to, if you want to go into the details, would be to look at our IPO documents. But I would say working with an average of, at group level, $7-$8 is probably a reasonable assumption off the top of my head.
Yep. Okay. All right. Thank you. And then a question on maybe just on costs and maybe yourself, Gerhard, as well. I know we talked about ripping out the removing, I should say, the truck shovel fleets, which is great for absolute cost reduction. I'm just curious around underlying dollar per BCM trends that you're seeing at the moment with respect to controllable sorry, uncontrollable costs really around diesel and labor. Labor inflation, no doubt, is still an issue. But just overall, are we seeing any sort of stabilization or maybe reduction in dollar per BCM on truck shovel fleets?
Gerhard, you can come in if you like.
So on labor, yes, there is inflation in the market out there. We're fairly protected at this stage because all of our labor is under enterprise agreement. We signed up a new EA for our workforce last year that carries us forward for four years. And our two major contractors are the same. Scarcity of labor obviously is driving up cost for maintenance skills and the like. And we're looking at strategies to protect our business against that going forward. And that's common, yeah, and in the United States. We're seeing parts pricing starting to normalize. Some of the spikes we saw earlier years with their supply chain challenges where the indices were very high, those are starting to come back to some long-term normal pricing. So that has started to normalize within the business.
So the factors beyond our control are really driven by those two big buckets within the business. Yeah. I can add to this. I think there's something positive here. I think in the US, the costs and expenses are fairly, I wouldn't say fixed. You have always opportunities to improve, but it's a very linear operation. Buchanan is the biggest one. I talk about Buchanan. It's a fairly linear operation. So in terms of productivity, we can definitely squeeze out more productivity, which will result into lower costs when we go into, when we look at the period after the expansion. And you've seen quarter-over-quarter already, costs came down by $13 per tonne in the US, but largely not because of lower costs, more so because of higher production. So we need to look at the denominator. Australia is different. Australia is not a linear operation.
Australia is very complex. As we remove complexity, we have seen we have taken costs out nearly by $50 per tonne between the quarters. In quarter one, we had like 127 from memory. Now in quarter two, we had just above 80. We talk close to $50 per tonne if things go our way, meaning we have minimal disruption. We always have disruption. I always say that internally if it happens, unfortunately. Many times you don't know what, but something will happen. If things go your way and you have good production and you do the same production levels even more with 5 fleets less, we can see how the mining costs in Australia where they can go. They can go into the 70s. They're in the low 80s now.
So therefore, I would say we have further potential to improve our costs, absolutely, this year and then following years.
Yep. That's very helpful, guys. And just last one from me. Just on the port allocation, a reminder of RG Tanna as WICET. And particularly on WICET, do you still have exposure there and for how much longer?
At WICET?
Yes.
Oh, yeah. That's beyond our planning horizon, yes, the exposure. Yeah.
Okay. And just on the port charges, have you heard anything to call out on dollar per tonne versus WICET versus RG Tanna?
No. Well, I mean, WICET is profoundly more expensive. I can call that out, as you know. But it is what it is. I mean, that's a commitment we bought when we bought Curragh at the time. It's not possible to get out of it. You could buy yourself out of it, but that's uneconomic.
Okay. No problem. I'll take it online. I've got a few more questions on that. Thanks, guys.
Yeah. Yeah.
Thank you. There are no further questions at this time. I'll now hand back for any closing remarks.
Everybody, firstly, thank you for making the time to join us today and the questions and the understanding of our business and particularly our plans going forward. We labor the point of pointing out the plan. We are executing a plan as a team. We've called out the strategic focus areas of that plan. I think, as you've seen, it's starting to bear fruit. We look forward to continuing executing our plan and delivering sustainable solutions into the future as we hold control of the plan. Cheerio.
Thank you. That does conclude our conference for today. Thank you for participating.